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Will crude oil prices to shoot up further?

Tuesday February 28, 2017 10:34 PM, Agencies

Saudi Oil

London:
From $35 a barrel in November 2016 to $56 a barrel - crude oil prices have seen 14% rise in the last three months. However reports now suggest that the oil prices are likely to shoot up further.

If a report by news agency Reuters is to be believed, Saudi Arabia wants crude oil prices to rise to around $60 a barrel in 2017.

Citing unnamed sources, the report said, this is the level the OPEC heavyweight and its Gulf allies - the United Arab Emirates, Kuwait and Qatar - believe would encourage investment in new fields but not lead to a jump in U.S. shale output.

The Organization of the Petroleum Exporting Countries, Russia and other producers pledged last year to cut production by about 1.8 million barrels per day (bpd) from Jan. 1. The first cut in eight years is intended to boost prices and get rid of a supply glut.

OPEC officials have repeatedly said the group does not target a specific oil price and their focus is on drawing global oil inventories and helping the market to re-balance.

But behind closed doors, Riyadh and its Gulf OPEC allies hope to see a higher level because the low price has pressured their finances and stoked fears of a future supply shortage.

However, they do not want the price to be so high that it encourages rival U.S. shale producers, which were hard hit by the slump in oil prices, to ramp up production again. Advances in technology have made it easier for them to adapt quickly to oil price fluctuations.

"They (the Saudis) want to see oil prices at $60 towards the end of this year. It's good for (oil) investments," said a Gulf oil industry source familiar with the matter.

Another non-Gulf industry source said, "OPEC and particularly the Saudis want higher prices" not just for investment but also as Riyadh as it seeks to offload a stake in state-owned oil giant Saudi Aramco‎.

Over $1 trillion worth of oil projects have been canceled or delayed since mid-2014. A decline in investments in future oil projects triggered worries that this could lead to a supply shortage and spike in oil prices.

Oil fields take around four years to develop before production can start whereas U.S. shale oil can now be extracted within a few months of a decision.

"In general, something around $60 this year is good. $60 will not encourage that big increase in shale," said one OPEC source, adding that shale oil production is expected to grow by about 300,000 bpd this year.

 

 


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